<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 01-9723
PHARMACEUTICAL MARKETING SERVICES INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 51-0335521
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
Suite 912, 45 Rockefeller Plaza, NY 10111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 841 0610
---------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No
As of October 31, 1997, there were outstanding 13,245,675 shares of Common Stock
of Pharmaceutical Marketing Services Inc.
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PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
(unaudited) for the Three Months
Ended September 30, 1996 and 1997........................... 3
Consolidated Balance Sheets (unaudited) as of
June 30, 1997 and September 30, 1997........................ 4
Consolidated Statements of Cash Flows
(unaudited) for the Three Months Ended
September 30, 1996 and 1997................................. 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition......................................... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security-Holders............................................ 11
Item 6. Exhibits and Reports on Form 8-K............................ 11
Signatures.................................................. 12
Index to Exhibits........................................... 13
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PART I.
ITEM 1.
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
SEPTEMBER 30
1996 1997
--------- --------
<S> <C> <C>
Revenue $21,922 $20,093
Production costs (12,688) (10,839)
Selling, general and administrative expenses (8,306) (8,282)
Amortization of intangible assets (454) (342)
Loss from assets held for sale -- (598)
--------- --------
Operating income 474 32
Gain on sale of operations -- 2,631
Interest and other income 672 871
Interest expense (740) (1,166)
--------- --------
Income before income taxes 406 2,368
Income tax (provision) benefit (158) 105
Minority interest (21) --
--------- --------
Net income $ 227 $ 2,473
========= ========
--------- --------
Net income per share $ 0.02 $ 0.18
========= ========
Common Stock and common stock equivalents 13,208 13,498
--------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements
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CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1997 SEPTEMBER 30, 1997
------------- ------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 32,414 $ 28,910
Marketable securities 24,738 33,146
Accounts receivable, principally trade 27,442 19,577
Work in process 3,798 1,619
Prepaid expenses and other current assets 4,905 7,999
Net current assets held for sale 4,236 989
-------- --------
Total current assets 97,533 92,240
Marketable securities 7,384 9,493
Property and equipment, net 11,761 12,116
Goodwill, net 25,303 22,931
Other assets, net 6,424 6,222
Net assets held for sale 18,797 18,721
-------- --------
Total assets $167,202 $161,723
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 407 $ 633
Accounts payable 5,036 3,156
Accrued liabilities 10,507 8,053
Unearned income 17,373 14,150
-------- --------
Total current liabilities 33,323 25,992
Long-term debt 69,552 70,081
Other liabilities 583 497
-------- --------
Total liabilities 103,458 96,570
-------- --------
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 25,000,000
shares authorized, and 13,199,475 and 13,245,675
shares issued and outstanding, respectively 132 132
Paid-in capital 87,179 87,593
Accumulated deficit (20,029) (17,556)
Cumulative translation adjustment (3,534) (5,011)
Unrealized loss on investments, net of
income tax benefits of $3 and $3, respectively (4) (5)
-------- --------
Total stockholders' equity 63,744 65,153
-------- --------
Total liabilities and stockholders' equity $167,202 $161,723
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
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PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
1996 1997
------- --------
<S> <C> <C>
Net cash provided by operating activities $ 3,831 $ 980
------- --------
Cash flows provided by (used in) investing activities:
Capital expenditures (1,169) (640)
Proceeds from businesses disposed, net of associated
selling expenses 424 7,806
Loan to Source Informatics -- (1,500)
Sale (purchase) of marketable securities, net 5,753 (10,524)
Acquisition and contingent payments -- (2,159)
------- --------
Net cash provided by (used in) investing activities 5,008 (7,017)
------- --------
Cash flows provided by (used in) financing activities:
Net proceeds from options exercised 143 414
Repayments of long-term debt and capital lease
obligations (82) (87)
------- --------
Net cash provided by financing activities 61 327
------- --------
Effect of discontinued operations 1,399 --
Effect of assets held for sale -- 2,802
Effect of exchange rate movements 41 (596)
------- --------
Net increase (decrease) in cash and cash equivalents 10,340 (3,504)
Cash and cash equivalents at beginning of period 12,669 32,414
------- --------
Cash and cash equivalents at end of period $23,009 $ 28,910
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
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PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying statements of operations for the three months ended
September 30, 1996 and 1997, the statements of cash flows for the three
months ended September 30, 1996 and 1997, the balance sheet as of
September 30, 1997 and the related information of Pharmaceutical Marketing
Services Inc. (the "Company" or "PMSI") included in these notes to the
financial statements are unaudited. These financial statements, where
applicable, have been restated for discontinued operations. In the opinion
of management, the interim financial information reflects all adjustments
(consisting only of items of a normal recurring nature, except for
discontinued operations) necessary for the fair presentation of the
financial position, results of operations and cash flows for the periods
presented. The results of continuing operations for the three months ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the entire fiscal year.
The June 30, 1997 balance sheet was derived from the Company's June
30, 1997 audited consolidated financial statements, but does not include
all disclosures required by generally accepted accounting principles.
These interim financial statements should be read in conjunction
with the audited consolidated financial statements and related notes
thereto included in the Company's Annual Report for the year ended June
30, 1997.
At September 30, 1997, Source Informatics Inc. ("Source") owned 6.9%
of the Company's common stock.
2. INCOME PER SHARE
Earnings per share for the three months ended September 30, 1996 and
1997 were computed based upon the weighted average number of shares
outstanding and common stock equivalents (stock options) using the
treasury stock method.
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3. INCOME TAXES
The effective income tax rates for the quarters ended September 30,
1996 and 1997 were 39% and (4)%, respectively. The gain on sale of
operations during the quarter has no associated tax charge. The 1998
fiscal year effective income tax rate, based on the Company's projected
mix of country profits including actual results for the three months ended
September 30, 1997 but excluding the gain on sale of operations, is 40%.
4. GOODWILL
The Company assesses the recovery of its goodwill on a
subsidiary-by-subsidiary basis by determining whether amortization of
goodwill can be recovered through expected net future cash flows
(undiscounted and without interest charges). Impairment is measured based
on the present value of estimated expected future net cash flows using a
discount rate reflecting the Company's cost of funds.
5. ASSETS HELD FOR SALE/ DISCONTINUED OPERATIONS
The decision to divest the Company's non-database segment during fiscal
1996 resulted in a net loss of $8.9 million being recorded in the 1996
statement of operations classified as loss from discontinued operations.
This was followed by a further net charge for the loss on disposal of
these discontinued operations of $9.9 million during fiscal 1997.
At the end of the measurement period, one business from the discontinued
non-database segment still remained to be sold. As it is still intended to
sell this business its results subsequent to the measurement period have
been included within operating income as "loss from assets held for sale".
Its net assets, together with the remaining accrual for the loss expected
to be generated on disposition, are recorded in the balance sheet as "net
current assets held for sale" and "net assets held for sale".
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
The operating results for the three months ended September 30, 1997
reflect the Company's decision to focus on being an information provider to the
pharmaceutical and healthcare industries. Effective July 1, 1997 the Company
sold its Dutch and US-based international publishing and communications
operations to Excerpta Medica, the medical communications division of Elsevier
Science for approximately $9 million, resulting in a net gain on sale of $2.6
million. Prior to sale, the operating results of these businesses were included
within the results of the Company's continuing operations.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
REVENUE
Revenue for the Company's first quarter of fiscal 1998 decreased to $20.1
million from $21.9 million for the corresponding quarter of 1997, representing a
decrease of 8%. This reduction was primarily the result of the divestiture of
the international publishing business during the quarter. Excluding the effects
of Bugamor and other businesses divested during fiscal 1997, revenue from the
Company's ongoing operations increased by $2.4m or 14%. This increase in revenue
relates primarily to market research services from the Company's Scott Levin
subsidiary and the continued growth of information services in Japan. Currency
exchange rate movements, principally in Japan and France, negatively impacted
the quarter's revenues by $0.4 million, or 2%.
PRODUCTION COSTS
Production costs decreased to $10.8 million (54% of revenue) from $12.7
million (58% of revenue) in the comparable quarter of fiscal 1997. Excluding the
effects of the publishing business divested in the quarter, production costs
increased by 3%, which was mainly attributable to price inflation together with
the impact of the revenue growth.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs were unchanged at $8.3 million.
As a percentage of revenue this represents 41% in 1997 compared with 38% in
fiscal 1998. Excluding the effects of the publishing business divested in the
quarter, selling general and administration costs increased by 7%, principally
due to increased selling
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costs associated with the significant growth in the Company's market research
business in the US.
NET INTEREST EXPENSE
Net interest expense for the quarter ended September 30, 1997 was at $0.3
million, an increase of $0.2m from the equivalent quarter in fiscal 1997. This
increase in expense arises from the lower interest costs in fiscal 1997
following the allocation of almost $0.4 million debenture interest to the
discontinued operations.
INCOME TAXES
The Company recorded an income tax credit of $0.1 million for the three
months ended September 30, 1997 on pre-tax profit of $2.4 million, an effective
rate of (4)%, the gain on disposal of the Company's international publishing
business being tax free. Excluding this gain, the Company's effective rate was
40%. The fiscal 1997 effective tax rate was 39% on pre-tax operating profit of
$0.4 million.
The 1% rate differential reflects changes in the anticipated mix of
country profits for the year ending June 30, 1998 and reduced potential use of
net operating loss carry forwards in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's cash, cash equivalents and marketable
securities totalled $71.5 million, an increase of $7.0 million from the $64.5
million balance at June 30, 1997. The increase is primarily due to movements in
working capital and proceeds from the sale of the Company's international
publishing business. The current ratio at September 30, 1997 increased to 3.5
from 2.9 at June 30, 1997.
The Company anticipates, in fiscal year 1998 and in subsequent years, its
capital expenditures and working capital requirements will be funded from cash,
cash equivalents and marketable securities and internally generated funds. The
timing and magnitude of future acquisitions will continue to be the single most
important factor in determining the Company's long-term capital needs.
ACQUISITIONS AND DIVESTITURES
9
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On July 1, 1997 the Company sold its Dutch and US-based international publishing
and communications operations to Excerpta Medica, the medical communications
division of Elsevier Science for approximately $9 million, resulting in a net
gain on sale of $2.6 million.
On July 1, 1994 the Company acquired 80% of the Common Stock of Mediphase
Limited, a specialist software and information Company in the United Kingdom. On
July 1, 1997 the Company acquired the remaining 20% of the Common Stock in
Mediphase Limited for $1.7 million.
SUBSEQUENT EVENTS
On August 20, 1997 the Company announced that it had signed definitive
agreements to acquire the Source Europe business and to divest its minority
interest in the Source Informatics venture in the United States together with
its OTC Physician Survey business in a three way transaction with National Data
Corporation (NDC) and Source Informatics Inc. (Source). Under these agreements,
PMSI will receive (i) the Source Europe business, (ii) 918,254 PMSI common
shares held by Source, (iii) $15.5 million in cash, and (iv) 1,059,829
registered shares in NDC.
The Company has filed a preliminary proxy statement with the SEC, and upon
receiving clearance from the SEC, will call a special meeting of PMSI's common
stockholders. Subject to receiving the approval of PMSI common stockholders, the
Company expects the transactions to close before the end of calendar year 1997.
10
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
11 Computation of Earnings per Share.
REPORTS ON FORM 8-K
Disposition of Bugamor International Publishing Business (incorporated by
reference to report on Form 8-K dated August 19, 1997)
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 1997 Pharmaceutical Marketing Services Inc.
By /s/ Raymund M. Davies
-----------------------------
Raymund Davies
Chief Financial Officer
On behalf of the registrant and as principal
financial officer.
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INDEX TO EXHIBITS
Exhibit Description Page Number
- ------- ----------- -----------
11 Computation of Earnings per Share 14
13
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EXHIBIT 11
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended September 30
1996 1997
------------- -------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Common shares outstanding 13,186,275 13,219,043
Assumed exercise of certain stock options 21,947 279,070
----------- -----------
13,208,222 13,498,113
=========== ===========
----------- -----------
Net income (in thousands) $ 227 $ 2,473
=========== ===========
----------- -----------
Net income per share $ 0.02 $ 0.18
=========== ===========
FULLY DILUTED EARNINGS PER SHARE
Common shares outstanding 13,186,275 13,219,043
Assumed exercise of certain stock options 21,947 279,070
Assumed conversion of convertible debentures -- --
----------- -----------
13,208,222 13,498,113
=========== ===========
Net income (in thousands) $ 227 $ 2,473
Reduction in interest expense following conversion -- --
----------- -----------
Revised net income (in thousands) $ 227 $ 2,473
=========== ===========
----------- -----------
Fully diluted net income per share $ 0.02 $ 0.18 (1)
=========== ===========
</TABLE>
(1) Convertible debentures have not been assumed converted for the fully
diluted earnings per share as the effect would be anti-dilutive. Had the
convertible debentures been included, the number of shares would have
increased by 3,450,000 for the three months ended September 30, 1996 and
1997 respectively.
As a result of reduced interest expense following conversion, the increase
to net income would have been $647,000 in 1996 and 1997. These adjustments
would have resulted in a fully diluted income (loss) per share of $0.05 and
$0.18 for the three months ended September 30, 1996 and 1997, respectively.
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 28,910
<SECURITIES> 33,146
<RECEIVABLES> 19,847
<ALLOWANCES> (270)
<INVENTORY> 0
<CURRENT-ASSETS> 92,240
<PP&E> 16,198
<DEPRECIATION> (4,082)
<TOTAL-ASSETS> 161,723
<CURRENT-LIABILITIES> 25,992
<BONDS> 70,081
0
0
<COMMON> 132
<OTHER-SE> 65,021
<TOTAL-LIABILITY-AND-EQUITY> 161,723
<SALES> 20,093
<TOTAL-REVENUES> 20,093
<CGS> (10,839)
<TOTAL-COSTS> (20,061)
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<INCOME-PRETAX> 2,368
<INCOME-TAX> 105
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<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 2,473
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
